SPWR Soars 19%, Solar Names Rally on Polysilicon Cuts

By Tiernan Ray

Shares of solar energy technology makers soared today as word of tight polysilicon supply brightened an outlook for the companies, including SunPower (SPWR), up $1.51, or 19%, at $9.44, and First Solar (FSLR), up $1.96, or almost 7%, at $32.36.

Credit Suisse‘s Satya Kumar today wrote that prices for polysilicon, a basic building block of solar panel modules, are “at a trough,” as Germany’s Wacker Chemie AG and Hemlock Semiconductor, a division of Dow Corning, lowered polysilicon production last quarter, and Hemlock forecast production to drop again this quarter.

First Solar’s thin-film cadmium telluride modules don’t really fit with the polysilicon theme, but have obviously been caught up with the general enthusiasm for improving industry economics.

Kumar opines a major obstacle for solar stocks has been removed, as Corning and others restructure their polysilicon production to deal with a collapse in sales:

Corning revealed Hemlock’s financials for the first time, revealing a steep drop in 2012 poly revenue and earnings y/y to explain the need for restructuring. These tier 1 poly production cuts lend credence to our view that after years of pricing declines, now finally poly and panel pricing have bottomed for the solar industry. A flat pricing has diminished the “second derivative” negative for solar stocks. Positives for solar stocks are: (i) stable pricing leading to gradual demand recovery in new geographies; (ii) policy driven positives in China (potential for 8+GW of demand in 2012); and in the US possibility of solar qualification for MLP/REIT structures (though our checks are mixed on this); (iii) relative stability allows some companies to potentially surprise on the upside through execution (e.g., JinkoSolar Holding (JKS) and Canadian Solar (CSIQ) downstream EPC activities could positively surprise investors in 2Q13; SCTY & WFR could benefit from the US market).

Opines Kumar, the next things that need to happen to help the stocks are that “excess panel capacity in China needs to be permanently retired,” Hemlock and Wacker need to resolve the matter of oustanding “take or pay” contracts with customers, and the market needs to see whether Europe imposes tariffs on China-based solar providers.

Kumar says his preference in solar is for polysilicon producer MEMC Electronic Materials (WFR) and SolarCity (SCTY). SolarCity shares today rose $1.54, or 10%, to close at $16.67, while WFR stock was unchanged at $4.48.

The group has notched impressive gains this year, with SunPower up 68%, Canadian Solar up 44%, and Solar City up almost 40%. First Solar has notched a more modest 5% gain.

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There are 5 comments

FEBRUARY 11, 2013 5:34 P.M.

marketbuy wrote:

We don't need a fool (ANAL-yst) to tell us that the spot prices have seen its trough. No duh! This is why we have invested in solar stocks since Nov 2012. The investment community always knew that the ANAL-ysts are not that bright and the ANAL-ysts tend to be behind the 8 ball.

now, all of a sudden, everything is all rosy when in fact, NOTHING has really changed since last Nov! It's a fact that solar stocks are good long tern investment at this level (hasn't anyone learned anything about the homebuilder stocks when no one wanted them)? Look at them now....

I can say the exact same thing about the gasoline refiners (VLO and TSO). Nobody wanted them then. Look at them now....

FEBRUARY 11, 2013 6:53 P.M.

Plugging into the sun wrote:

Tight polysilicon supply means poly prices are rising. Poly is a key cost in solar modules. That means SPWR will pay more for raw materials and therefore depress gross margins. Not to say that solar stocks are are a bad investment, but the reason for the rise has nothing to do with tight poly supply.

FEBRUARY 11, 2013 10:05 P.M.

SPWR4TODAY wrote:

The news regarding the creation of solar project bonds makes about as much sense as an increase in input cost leading to an expansion of margins.

FEBRUARY 11, 2013 10:42 P.M.

anonymous wrote:

I think you need to check with the analyst who called the solar destruction previously (a guy by the name Johnson). He has been very accurate so far.

FEBRUARY 13, 2013 8:47 P.M.

Anonymous wrote:

solar installations are way up, everybody has to have it, i.e. "well honey, the johnsons nextdoor just had solar panels installed, i want solar panels too." they will be on every roof soon, the market is correct to see the value here. The correction is taking place alright, and it will be well above $10. SPWR is now a lean mean moneymaking machine.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.